October 23, 2020
From an equity perspective, a contested election looks like the worst-case, short-term scenario coming out of 11/3. Fortunately, it’s a ‘known risk’ and partially priced into markets by the looks of single stock option premiums and VIX futures pricing into December. Nevertheless, a contested outcome would still result in some downside…maybe even to our worst-case technical support level of ~2950. An orderly Trump victory is probably still the preferred equity market outcome because it would immediately de-risk any presumed higher tax rates and increased regulations under a Democrat sweep scenario. De-risking those headwinds would likely result in an instant successful test of the ~3581 high with upside beyond our current standalone target of ~3650. And if the outcome doesn’t result in immediate tariff threats, we see upside to ~3930. Gridlock (Biden/GOP Senate or Trump/Democrat Senate) would also be equity-friendly outcomes. A Democrat sweep could result in near-term upside given expectations for large-scale fiscal spending, but that response would likely fade as tax/regulation headwinds get more fully priced in. A blue wave (defined as a Biden landslide win and Democrats pick up 6+ seats in the Senate) is the biggest intermediate-term risk for equities with greater expectations for increased taxes and increased regulation to outweigh any presumed benefit from large-scale fiscal spending.